What Augusta takeover means for listed property, retirement stocks: shakeup forecast

What does the Augusta deal tell investors in other businesses? Photo / Supplied

Institutional investors expect more takeovers for mid-sized NZX-listed companies this year, with Augusta Capital now joining Metlifecare as a target.

ASX-listed Centuria Capital wants to buy all the shares in Augusta, which manages $2 billion of property here, in a cash or scrip deal valuing the firm's equity at $180 million.

Shareholders with 36.2 per cent of Augusta, including founder and managing director Mark Francis and executive director Bryce Barnett, have already agreed to accept the offer, but all shareholders will meet and vote after an independent appraisal emerges.

Augusta's independent directors have unanimously recommended the cash offer but have made no recommendation on whether investors should accept Centuria shares.

Centuria has pitched its offer at $2 per share, a 20 per cent premium to the price Augusta shares closed at on Tuesday before the offer was made public. The stock jumped 18 per cent to $1.97 following the announcement.

Augusta shareholders opting to take shares in Centuria will get 0.807 shares for every Augusta share they own. Centuria shares last traded at A$2.41 and have risen 90 per cent in the last 12 months.

That takeover offer follows the equally surprising December announcement of European private equity firm EQT's $1.49b takeover offer for Metlifecare.

Francis said while the NZX stands to lose another name he expected the Augusta Industrial Fund to be listed on the NZX as well as the new tourism fund.

Francis owns 17 per cent of Augusta worth around $30m including options, while fellow shareholder Barnett owns 5.5 per cent worth about $10m but he stressed neither would get cash if they sold their shares to Centuria.

The pair have also agreed to a three-year employment contract at Centuria.

Augusta Group managing director Mark Francis. Photo / Supplied

"We're taking our proceeds out in Centuria shares as opposed to cash because we believe in the long term of the combined entities. We're putting our money where our mouth is," Francis told the Herald.

A three-year contract struck with Centuria meant Francis would receive "a total package of about $900,000 per annum including bonuses, the same as what I've been getting paid already." Much the same applied to Barnett, he said.

More takeovers expected

Matthew Goodson, managing director of Salt Funds Management, said the market this year could well see more takeovers like those for Augusta and Metlifecare.

He acknowledged Augusta would be de-listed from the NZX if Centuria wins.

Chris Tennent-Brown with Matthew Goodson and Liam Dann. Photo / Focus

"In terms of being good for the NZX or not, I think it is part of a trend that will continue through 2020. Small-mid cap companies that aren't in indices are far cheaper than larger companies that are in indices," Goodson said.

"Add private equity funds being awash with cash, very low interest rates and easy conditions to raise corporate debt and you have the makings of a very favourable environment for mergers and acquisitions," he said.

Shane Solly of Harbour Asset Management expects the same, with the world awash with capital and such low interest rates in many developed economies.

Shane Solly expects more M&A. Photo / Dean Purcell

"I would not be surprised to see more consolidation," Solly forecast of possible M&A activity of NZX listed vehicles this year.

Asked if that would be in the property or retirement fields, he said "all of the above".
Harbour owns Augusta shares for clients, Solly said.

"This is indicative of investors globally seeking out quality ways to put money into real estate assets," Solly said.

Chris Gaskin of Devon Funds said losing Augusta was not a concern.

"The listed property companies have all raised significant amounts of new equity in the last year or two. To give you some perspective, Precinct alone raised $150m this time last year," he said, noting that was $5m more than Augusta's market cap pre-takeover offer.

The Metlifecare takeover was "a healthy thing that a listed company trading at a deep discount to fair value for a sustained period of time receives a takeover offer. This is markets working as they should," Gaksin said.

Jeremy Simpson, a Forsyth Barr analyst, said the NZX had 11 listed property vehicles "so it's a reasonably deep sector and about 10 per cent of the NZX market".

Those businesses are Asset Plus, Argosy Property, Augusta Capital, CDL Investments, Goodman Property Trust, Investore, Kiwi Property, Precinct Properties NZ, Property For Industry, Stride Property Group and Vital Healthcare Property Trust.